Fannie Overpaid Servicers by $89M: Watchdog Report

WASHINGTON — Fannie Mae overpaid its servicers by roughly $89 million last year due to errors made during a manual review by a third-party vendor, according to an inspector general's report released Wednesday.

The Office of Inspector General for the Federal Housing Finance Agency uncovered that Fannie paid servicers millions more than they were supposed to get, while also incorrectly denying $27 million in reimbursements in 2012. The watchdog agency blamed faulty reviews by Accenture, an IT consulting and outsourcing firm.

The FHFA, which is conducting its own review of the problem, disagreed with the IG's methodology, claiming that the total amount of the payment errors was "substantially less" than reported by the inspector general. The FHFA did not specify an alternative estimated amount.

According to the IG's report, analysts at Accenture are responsible for reviewing reimbursement claims by the servicers and deciding whether to pay, curtail, or deny the request. Last year, the firm manually reviewed roughly 1.3 million claims and approved approximately $2.9 billion worth of reimbursements.

The decisions are then relayed to Fannie, which then reimburses the servicers in the amount approved by Accenture's analysts.

Prior to 2011, Fannie completed its own reimbursement reviews, but now the majority of claims — 80% — are manually reviewed by an Accenture analyst, the IG report said.

"When an Accenture analyst erroneously approves or denies a line item in a claim, it results in Fannie Mae making an overpayment or underpayment, respectively to a servicer," according to the IG's report.

Errors typically arise when there is inconsistent application of guidelines, limited reviews, complexity or a large volume of servicer claims.

"Although these overpayments may not equate directly to financial harm against Fannie Mae, they represent a fundamental problem that undermines the reliability and integrity of Fannie Mae's servicer reimbursement operations," according to the IG's report. (The OIG said it was unable to calculate the amount of financial harm caused by the overpayments.)

In response to the inspector general, a spokesman for Accenture said the report "is incorrect."

"Accenture does not approve or deny servicer reimbursement," the spokesman said. "Accenture's processors follow guidelines and business rules set by Fannie Mae to recommend how to disposition claims. Accenture does not have responsibility for payment and disbursement of funds."

A spokeswoman for Fannie said the government-sponsored enterprise has "strong oversight of servicers."

"Under our direction, servicers regularly advance payment for a number of activities on our behalf and we reimburse them," the spokeswoman said. " If an overpayment is discovered, we recover the funds from the servicer. We continually evaluate our servicers' performance, and we take actions to improve our process and mitigate risk."

In its report, the inspector general made three recommendations to the FHFA, including having Fannie take steps to minimize its processing errors by creating a red flag system. It also called on Fannie to quantify and aggregate its overpayments to servicers and create a plan to reduce such overpayments by pinpointing the root cause and setting targets. The inspector general called on the agency to publish the results.

In its response in the report, FHFA agreed to implement the first two recommendations, but challenged the third.

"Although FHFA will monitor the results of Fannie Mae's remediation efforts, we will not publish the results," the agency wrote.